Tuesday, August 18, 2009

In 2003, the community near the Coca-Cola bottling plant in Kerala, India protested against the water scarcity and polluted water that resulted from its bottling operations. The allegations caused the closure of the bottling plant. Coca-Cola was banned in the state for these unethical business practices. Soon after the incident, the Center for Science and Environment (CSE), a Delhi-based environmental NGO, released a report indicating the presence of pesticides, greatly exceeding European standards, in a dozen popular beverages sold under the brand names of the Coca-Cola Company and PepsiCo. This report raised serious protests all over India on the soft drink industries, especially Coca-Cola and PepsiCo. Together, the companies have 90% of the India's soft drink market.

In response to the allegations, Coca-Cola denies them by saying their products are safe and questions the lab reports presented by CSE. The University of Michigan placed the Coca-Cola Company on probation in 2006, and asked for an independent assessment of its operations in India. The soft drinks were examined by an independent lab, The Energy and Resources Institute (TERI). According to the reports the soft drinks were declared safe and pesticide free. However, the CSE claimed that only the water was tested and not the other ingredients; ingredients such as artificial flavors and sugar. After the reports from TERI were published the government declared soft drinks as safe. However, the problems with some bottling plants still remain, due to the depleting levels of ground water, day by day.

Critical Issues/Problems:

Solid waste and water issue: The communities near the bottling plant in India complained about the passage of sludge as fertilizer, causing health and environmental damage. The most important issue concerning these communities is the depletion of water levels caused by the Coca-Cola bottling operations which have drastically reduced availability of water for irrigation purposes.

Pesticides in soft drinks: The other issue concerning human health caused by Coca-Cola is that their bottled water and soft drinks contain pesticides which were tested by the reputed NGO, CSE.

Dual product standards: Coca-Cola is accused of having dual standards in terms of their products and safety measures concerning human health with respect to USA, Europe and India.

Community issue: These allegations affected Coca-Cola largely with its sales and also caused the closure of one of their bottling plants in Kerala, India. Additionally, Coca-Cola’s products are banned in the state of Kerala, India.

Action Taken:

Coca-Cola Company, India thought seriously about its corporate responsibility and witnessing huge sales losses. In order to gain trust among the local communities near the bottling plant, they improved their business practices and reduced the water usage by 34%. Through the practice of rainwater harvesting, Coca-Cola returned substantial water to the aquifers. They have stopped distributing sludge as Biosolids(fertilizers) to farmers for agriculture use, and have taken initiatives with the Indian government to encourage the development of additional solid waste disposal sites. The water used for making soft drinks is treated with activated carbon filtration and run through a purification process to ensure that the water is free of pesticide residue. The ingredients are also closely monitored and undergo various quality checks. According to the company’s factsheet, they strictly follow the product standards which are the same all over the world.

Coca-Cola has also partnered with the NGO’s and the government to provide medical access to poor people through regular health camps. In addition to their outreach efforts, the company committed itself to environment responsibility through its business operations. For example by following the practices of conserving energy and by adhering to the ban on purchasing CFCs, Coca-Cola exhibited greater corporate responsibility.

The allegations in other ways helped Coca-Cola Company, India to show their corporate social responsibility and to maintain good product quality standards. The initiatives all over India helped them reach villages for a good cause and also indirectly marketed their products with establishing a trust among the public. After all these allegations, the CSE is still not convinced of the quality of the product. Therefore, Coca-Cola must prove that they have upgraded their lab with sophisticated instrument which is capable of measuring pesticide residue in soft drinks. As per the recent reports by CSE, they claim that the pesticide residue has gone up 27 times higher than expected level by the Bureau of Indian Standards (BIS) (in 2006).

Monday, July 27, 2009

The “Browser War” between Microsoft (MSFT) and Netscape (NS) raises issues of fair competition and ethical business conduct. What does it mean to compete with integrity? Should responsible managers compete in any way the law does not clearly forbid?

Ethical issues are more complicated when the law is unclear, providing managers with little guidance and the choice of whether to take advantage of the unclear law. Before the MSFT case, there was no sure way to know how a court would apply law intended for heavy industry. This post concludes MSFT did not behave in the best interests of its customers or shareholders, and therefore acted unethically by forcing Internet Explorer (IE) on its customers and limiting their choices. MSFT also risked its very existence by violating antitrust law.

Environmental Analysis

A. General Environment

MSFT saw the emergence of the internet as both a threat and an opportunity. In response to his top executives’ suggestion that MSFT consider an all-web strategy, Bill Gates said, “You’re putting us on a level playing field. You’re going to kill the company.” (Spinello, 357). MSFT’s anti-competitive responses to the internet lie at the heart of the allegations against it.

During the mid to late 90’s, MSFT faced a challenging legal and political environment. A generic resentment toward MSFT existed, allowing opportunistic politicians the chance to seek good press by attacking MSFT (Anderson). Some evidence exists that MSFT’s competitors, namely America Online (AOL), had a hand in triggering antitrust scrutiny (Id.).

B. Operating Environment

By the mid 90’s, MSFT’s Windows operating system (O/S) held a dominant position, about 90%, in O/Ss for Intel based personal computers (PC’s) (253 F.3d 34). IBM’s O/S 2 Warp had failed, and Linux had not yet appeared on the scene (Operating). MSFT did, however, face competition from other systems. Apple had its own O/S, but even counting Macs, MSFT had an 80% market share (253 F.3d 34). Sun Microsystems built networks to run on Bell Labs’ Unix O/S (Spinello), but even when those kinds of systems were included, MSFT’s position was still dominant.

A web browser, such as Navigator, threatened to displace Windows, because the user only needed the browser to access and run programs from offsite servers (Spinello). In this “winner takes all” game, MSFT saw a threat to its existence (Anderson). MSFT has a long history of antitrust litigation. In 1994, the DOJ accused MSFT of maintaining a monopoly in the O/S market, and illegally using licensing and software developer agreements to maintain and exploit that monopoly (56 F.3d 1448). MSFT and DOJ settled the case, and reached a consent decree regulating MSFT’s conduct (147 F.3d 935). In 1997, DOJ accused MSFT of violating the consent decree by bundling Internet Explorer (IE) 3.0 and 4.0 with Windows 95 (147 F.3d 935). MSFT won that case, but the court left open the question of whether bundling violated the Sherman Act (253 F.3d 34).

C. Internal Environment

Bill Gates, MSFT’s talismanic founder, dominated the company. His competitive values permeated the firm’s culture; his fears of MSFT being displaced, as it had done to others, drove attitudes and decisions company-wide.

D. Assumptions

Both MSFT and DOJ made assumptions. MSFT assumed that Netscape posed a mortal threat, and therefore MSFT needed to defeat it at all costs. The DOJ assumed MSFT harmed competition through its actions. Whether either assumption is true is debatable.

Problem Definition

The chief allegations against MSFT can be divided between its standing as a monopoly, and various practices constituting unfair restraints of trade (253 F.3d 34). A separate issue is which legal remedy is appropriate (Id.). The case raises the question of whether a company in a dominant market position should face a different set of competitive rules than a smaller company

MSFT’s Size: Monopoly in PC Operating Systems

The government argued that MSFT had a monopoly because 90% of PC’s in America ran on a Windows operating system (O/S). The government claimed this dominant position harmed innovation and may have led to monopoly pricing. MSFT argued that the government too narrowly defined the market. MSFT contested that its customers could switch to Sun, Unix or IBM, and therefore MSFT could not act like a monopoly. MSFT changed the world’s way of doing business and transformed homes worldwide; saying that it hindered innovation was ludicrous. MSFT denied that its position harmed anyone, and that it competed fairly, and charged fair, low prices.

Restraints on Trade The government claimed a series of MSFT’s acts were uncompetitive and therefore violated the Sherman Act

1. Bundling

The government argued that giving away Internet Explorer, by bundling it with the Windows software and making it part of the O/S, unfairly disadvantaged Netscape because it could not compete with a competitor who gave away its product for free. Because users got IE for free, there was no need to purchase Navigator (253 F.3d 34).

2. Exclusionary Agreements

The government claimed MSFT illegally froze out Netscape by entering into exclusionary agreements with internet service providers (ISP’s), online services (OLS’s), and internet content providers (ICP’s), requiring the use of IE and forbidding promotion of Navigator (253 F.3d 34). If they wanted to offer Windows, they had to take IE and omit Navigator.

3. Restrictions on OEM’s

MSFT controlled how a PC would start the first time it was turned on by cutting exclusive deals with original equipment manufacturers (OEM’s). The agreements forbid Navigator to be installed, or its icons to be displayed prominently (253 F.3d 34).

4. Java

MSFT entered into an agreement wherein Sun licensed Java to MSFT, and MSFT distributed it. Sun accused MSFT of altering Java, “polluting it,” in an effort to discredit it. Gates said in an email “this [Java] scares the hell out of me. It’s still very unclear to me what our OS will offer to Java client applications code that will make them unique enough to preserve our market position” (Government Exhibit 983, Appendix D). An MSFT document suggested that MSFT “kill cross-platform Java by grow[ing] the polluted Java market” (Spinello). The federal court in San Jose ordered MSFT not to alter Java.

Lawsuit Result

The trial court’s factual findings were devastating for MSFT. The judge found MSFT to have a monopoly in a relevant market, abused its power, and competed unfairly with Netscape (253 F.3d 34). The trial judge had to choose between forbidding MSFT’s bundling and tying agreements, and a more draconian step like breaking up the company (253 F.3d 34). The trial judge ordered the company broken into two parts: One part would make O/S, the other applications (Id.).

The appellate court reversed (Id.). It affirmed the factual findings, but believed breaking up the company went too far (Id). The court remanded the case for a trial on the remedy.

DOJ and MSFT subsequently settled (231 F.Supp.2d 144). MSFT was not broken up (Id.). Rather, MSFT agreed to a series of measures designed to open up competition. MSFT agreed to refrain from entering anti-competitive agreements, to open up its source code to allow other companies to use it (Id.), and to a series of enforcement measures (Id.).

Alternative Courses of Action

A. Achieve and Maintain Dominant Position in Operating Systems

MSFT could have chosen to be content with being the dominant leader in the O/S market, rather than use additional tactics to eliminate competition.

Strengths

Some argue it was inevitable that someone would become the dominant maker of O/S’s (Spinello). People want to buy an O/S with the applications they need; application developers want to develop software for the platforms people have (Id.). An O/S, therefore, must reach a “critical mass” to be successful, making it a “winner takes all” game (Id.). MSFT was already the leader in the market, so simply needed to maintain its status, and serve the interests of its shareholders by maintaining the profitable Windows business.

Weaknesses

Domination in O/S’s, in conjunction with its actions in other areas of competition such as browsers and applications, exposed MSFT to antitrust attack. Without those tactics, the O/S would have to hold market share on its own. It if failed, market share would decline.

B. Provide a Better Product to Win the Competition

MSFT believed that Navigator posed an existential threat to Internet Explorer, and therefore MSFT. MSFT’s tying arrangements, bundling, free IE, and general efforts to keep Navigator off the market kept MSFT in a dominant position, but were illegal. MSFT competed, not by providing a better product, service, or price, but by excluding competition and limiting free choice. MSFT could have operated ethically and legally, by providing a better internet browser product.

Strengths

If MSFT had competed by providing a superior product, not only would this have encouraged innovation, but it also would have kept prices competitive for consumers, avoiding the claim that it had harmed anyone. Rather than spending its resources to avoid competition, it could have better spent them in research, development and marketing activities.

Weaknesses

MSFT would have had to compete based on its reputation, product quality and price, and innovation. If unsuccessful, it could lose its position. Limiting competition unethically was an easier route to take, but placed the company in legal jeopardy.

C. Partner with, rather than pollute Java

Strengths

MSFT saw Java as a threat, and the evidence shows MSFT’s deal with Sun was largely a deception intended to ruin Java. The upside is that MSFT gained access to Sun’s technology and made it dependent on MSFT’s technology. Rather than try to pollute Java to weaken it, MSFT could have considered the partnership with Sun as an opportunity to expand its offerings. To increase the demand for Java, MSFT could have offered the software on a free trial basis, or at a discounted rate to encourage sales of Java through MSFT.

Weaknesses

Java provides a product to customers that MSFT does not offer, which Gates saw as a potential weakness. Java could offer its product through other suppliers, or sell it directly through Sun, competing with MSFT. It would be in MSFT’s best interest to maintain a positive partnership with Sun so that both benefit.

Chosen Alternative

MSFT needs to take few, if any, steps to maintain its dominant position in the O/S market. To retain that status, it simply needs to focus on continually improving its O/S, to offer a product that consumers want to purchase. MSFT also needs to focus on developing a superior browser, to fairly compete with Navigator. It has the financial resources to devote to research and development, so should be able to remain on top.

MSFT must work closely with its attorneys to ensure it follows the law. Although the decisions in this case were made at the highest level, an overall ethical program might help to tone down the “win at all costs” mentality, especially when the costs might include the breakup of MSFT and even criminal penalties. The first task should be developing a code of conduct, which should define the behavior that is expected of all employees, as well as the ramifications for violations of the code. Microsoft should express that all employees will be expected to behave ethically and will be held accountable, and that leadership of all levels must set the example. The code of conduct should be visibly posted throughout the offices, and shared with all employees. It should also be publicized by posting it to the web site, which would help improve MSFT's reputation in the public and courts' eyes.

MSFT should also strengthen its partnership with Java by distributing the product on a 90-day trial basis for free. This would encourage customers to try it, and would likely result in their purchasing it through MSFT. These alternatives encourage innovation and competition, and will result in better products and lower prices for consumers. Healthy competition would have avoided the legal issues that MSFT faced.

Implementation

MSFT should capitalize on its relationship with Java by offering it on a 90-day trial basis for free. Customers would need to register the product to activate it, by providing their email address. After 60 days, MSFT should email customers, reminding them that their trial is about to expire, and offering the product at a discounted sales price. This would encourage sales and support through MSFT.

To provide a better O/S and internet browser, MSFT should develop focus groups, conduct surveys, monitor support center call topics, and offer incentives for customers who submit their “wish lists” for product enhancements. Not only would this provide insight to product developers, but also would build trust in the company and improve its reputation. Customers would feel MSFT was interested in and responsive to their suggestions, which will encourage customer loyalty. All customers, of both MSFT and its competitors, would benefit by having superior products available at lower prices, all provided ethically and legally.

Summary of Analysis

The Browser War shows the difficulty of working within an ethical framework, especially in a highly competitive environment in a winner takes all battle. A purely utilitarian framework does not solve the problem, due to the difficulty of quantifying the costs and benefits, and who will bear them (Shazly). Likewise, deontology does not solve the problem either, as no universal principle would constrain MSFT because the problems arise solely from MSFT’s dominant position (Id.). Instead, applying the Golden Rule to MSFT’s various stakeholders appears to give the most socially responsible and pragmatic results (Spinello).

MSFT chose to compete in ways that harmed its customers by limiting their choices. MSFT also took risks that could have devastated its shareholders, as the company was almost judicially dismantled. MSFT should have concentrated on making Windows better, and making IE better than Navigator. Ethical competition requires that companies take actions to benefit their customers, not limit customers’ choices. Ethical competition may not be the easiest way to succeed, but it is the right way—a way that builds integrity, trust, and reaps long-term rewards.

References Used

1. Spinello, R. A. "Competing Fairly in the New Economy: Lessons from the Browser Wars." Journal of Business Ethics 57.4 (2005): 343.

Friday, July 24, 2009

Monsanto is an USA based multinational agricultural biotechnological corporation. It is the leading producer of genetically engineered seeds and herbicides. Due to its aggressive marketing of biotech products and lobbying practices have made the company controversial all over the world and a primary target of environmental activist.

Critical issues/problems

Following are some critical problems which got Monsanto in trouble with the development of synthetic hormone rBST/rBGH, product named POSILAC.

1. Monsanto lied about the side effects of the synthetic hormone (recombinant Bovine Somatotropin - rBST) used to increase milk production in cows. They presented insufficient reports to the FDA (Food and Drug Administration) in order to keep the product on the market (POSILAC). Direct or indirect pressure was put on the University professors and research scientist who served on the committee for approval of the product. The conclusion of some Canadian and European scientists about the side effects of the drug were omitted from the final report presented to the FDA.

2. News reporters Steve Wilson and Jane Akre of WTVT (Fox 13) acquired the reports, which showed evidence of the side effects of rBST. They produced a story on the dangers of this synthetic hormone. Monsanto put pressure on the Fox Network for not airing the show. Monsanto threatened to withdraw its advertisements from all the channels owned by the Fox Corporation. Wilson and Akre refused to modify the story and as a consequence Fox fired them. Thus, Monsanto used lobbying practices in order to keep the product on the market, which is an unethical business practice. In short, Monsanto sole objective was gaining profit, ignoring the health of both animals and humans.

3. Obvious adverse side effects were seen on the cows that were treated with POSILAC. It caused the cow unnecessary pain and suffering, distress, and also caused infection in their udders. This also affected the milk produced. Additionally, the composition of the milk was not same as the milk from the untreated cows. Ultimately, human health is also in danger and can cause severe health issues.

Alternative Recommendations:

1. Monsanto should show ethical behavior in terms of business, government and society. Furthermore, Monsanto should clearly reveal the side effects and release all reports generated from the testing of POSILAC to the general public and FDA. Showing some social responsibility and care for animal and human health will improve the trust of the company.

2. Monsanto should conduct more research on synthetic hormones and to find out ways in which the adverse effects could be reduced. Moreover, if any adverse effect occurs, the results should be well stated to the general public. Lastly, it is recommended Monsanto concentrate on research and finding out new alternatives, rather than solely making profits, at the expense of the health of animals and humans.

Best Recommendation:

Based on the above recommendations, carrying out extensive research on the product and stating the side effects to the general public is the most crucial recommendation.

As research suggests, synthetic hormones cannot match the functionality and the superiority of natural hormones. Most of the companies which work in production of synthetic hormones begin with a natural substance. Because natural substances cannot be patented, the chemical composition is slightly altered. Thus, synthetic hormones are not an exact match of the body. Monsanto’s rBST differs from the cattle’s natural BST by a single amino acid. The milk produced from cattle treated with rBST is not equivalent to milk produced from the cattle which are not treated with rBST. To occupy the market and make profits, Monsanto ignored the side effects and additional research. The product severely affected the cattle, which ultimately affected the humans as they consumed the milk. Thus, both lack of testing and neglecting the obvious side effects caused Monsanto much trouble with law suits. Some reasons were Monsanto didn’t have the first hand knowledge of the effects of the synthetic hormone. After knowing the danger responsible behavior was not shown towards the damage done to the farm cattle’s. The resources of the company which worked on the team was not concentrated on the research but was into forcibly making the product used globally as well as in USA.

In a similar case with different results, Eli Lilly and Company is also into production of synthetic hormones. They developed synthetic insulin for diabetic patients (Product name-Humulin) which even today act as a life-saving drug in the market. The way Lilly operated as a company is different than the way Monsanto operated; they responsibly reported the research with the possible side effects of the hormone in humans to the FDA. The FDA worked in collaboration with Lilly to restrict some of the side effects. Now, the drug is widely used all over the world. Thus, in comparison to Monsanto, Eli Lilly’s approach was more defined, ethical and the resources were distributed more appropriately. This led to not only a successful product, but also a well recognized and accepted drug. Lilly had to face rejection and law suits. However, they handled it with medical and research evidence, not by pressurizing or dominating any adversaries. The care for social responsibility, human health and global responsibility followed with the well researched product.

Thus, any well-researched product holds key to the success of the product. Monsanto should work on researching the product and reduce or eliminate the side effects, which admittedly, is difficult at times. However, all corporations must at least show some social ethical behavior towards the society and follow ethical business practices.

Sunday, July 19, 2009

"The Corporation is different than what we imagine" this was my opinion about the corporation when I took the Business, Government and Society course in my MBA Program. During this course I had chance of reviewing some of the cases of big corporation's, these cases inspired me to write about the corporation in general. I will keep on added different cases which we as a class or individuals reviewed and came up with some analysis and reasoning followed by some recommendations. The recommendations might vary according to the individual’s perspective, so everybody who visit this blog or have some interest in the case can contribute. Suggestions and comments are always welcomed. Thank you for visiting my blog.

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My Blog describes the corporation in general. My intention behind writing this blog is to pass on my thoughts about the corporation, on the basis of the cases which I as individual or as a group analysed in my MBA program. The perspective of looking at the problem and the following recommendations may differ. Comments and suggestions are always welcomed. Thank you for visiting my blog.